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Let the Bush Tax Cuts Die: Kwak Makes the Case

graphic: House Speaker Pelosi via Flickr

Economist James Kwak who writes at Baseline Scenario with Simon Johnson, explains why the House should allow the cuts to die with no action.  I would offer  that the members should pepper the media with his explanations and math; they could reduce the arguments to a paragraph.  And they should.  Dems need to draw some clear lines between the parties and mean them.

He first addresses the question about conventional thinking that taxes shouldn’t be raised in such ‘tough economic times’.  He argues that there would be at first be small bit of negative growth, the multiplier of tax breaks is far smaller than for any type of government spending, especially in state and local government.  And he argues that later impacts would be greatly beneficial to most Americans and the overall economy .

Additionally, tax breaks for the wealthy offer little positive impact to the economy, as the rich spend less of their marginal income.  And the income to the Treasury would make the nation’s balance sheets healthier, and perhaps calm down some of the scare-talk over debt and deficits.

Kwak also believes that if Obama and Congress kick the can down the road again with a ‘temporary’ two-year extension of the cuts, they will almost assuredly become permanent.  . . .

He runs the numbers obtained from the Congressional Budget OfficeFamilies in the median income quintile ($36,000-57,700) would pay about about $880 more in taxes; Families in the 80th to 99th percentile would pay an additional $6094, and those in the fifth quintile (uber-wealthy) would pay about $339,473 more.

Recent polls show that while pundits and politicians believe allowing the middle-class tax cuts expire would kill the Dems in the polls and at the ballot in 2012, a majority polled would rather allow them all to die if it means extending them to the wealthy.

Kwak writes:

“Now, $880 means a lot to a middle-class family, and I will no doubt be called heartless for saying we should extend the tax cuts for no one rather than everyone. But letting the tax cuts expire will be better for the middle class, for one big reason–actually, 3.7 trillion reasons.

$3.7 trillion is the figure that is generally cited as the projected ten-year impact of the Bush tax cuts. Letting the tax cuts expire will eliminate $3.7 trillion from the projected national debt with one stroke. Why does this help the middle class? Because Social Security and Medicare are currently under assault. The national debt is being used as a bogeyman to frighten politicians (and the people who elect them) into agreeing to significant reductions to Social Security and Medicare.

Yet middle-class households need Social Security and Medicare far more than they need $880 of current-year income. Our country faces the very real threat of a retirement security crisis, since saving via 401(k) plans is shockingly low; in 2007, the average retirement account balance for a household where the head of household was between ages 55 and 64 was only $63,000 (Federal Reserve Survey of Consumer Finances, Table 6). That figure is surely lower today, after the financial crisis. And your administration knows very well the problem of health care cost inflation, having done more to attempt to solve this problem than any other administration, ever.”

I listened to listened to last night’s Hardball online this morning just to hear what was being said about the tax cuts and the Catfood Commission Report.  I would imagine the talk I heard here is fairly ubiquitous throughout the media.  Tweety, Mark Halperin, and Jon Heilman all said the President has no choice but to extend all the cuts, and laughed at Progressives being gloomy and doomy about the Bowles/Simpson recommendations for program cuts; they all agreed that they ‘spread the pain around’ so well that not even Progressives should be howling (not that they mentioned any of the multitude of egregious cuts that essentially amount to huge taxes and penalties on the middle and lower classes).  All other guests agreed that the President ‘just has to make some deals with this new Congress’.

So:  use Kwak’s figures and talking points, and send them to your Congress-critters and the White House.  This needs to be a good line in the sand for preventing even more extremes of income bolting upward into the coffers of the already-too-wealthy who are simply not paying their fair share.

Frank Rich at the NYT asks “Who Will Stand Up to the Superrich?” and introduces a book written by Jacob S. Hacker (of Yale) and Paul Pierson (University of California, Berkeley) in their deservedly lauded new book, “Winner-Take-All Politics.”  Rich says they have tracked upwardly-migrating incomes through modern history, and found that policies from the Democratically-controlled congress under Carter began the process, and it has accelerated since.

Paul Krugman asks if the President is willing to take a stand, and doubts it (which begs the question of what the President believes is important: American lives or re-election).

(cross-posted at

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